U.S. budget deficit climbs 12% to nearly $2 trillion in fiscal 2026

Bond yields near 24-year highs raise interest costs on $32T federal debt

The U.S. budget deficit climbed 12% to nearly $2 trillion in the fiscal year that ended Sept. 30, according to the Congressional Budget Office, reaching its highest level since 2021 and deepening the federal government’s persistent red-ink trend.

Federal spending totaled $7.4 trillion in fiscal 2026, up 6% from the prior year, while revenue rose 3% to $5.4 trillion. The deficit is expected to surpass 6% of gross domestic product, compared with 5.8% in fiscal 2025 — a level normally seen only during recessions and major wars, six-plus years into an economic expansion.

The persistent shortfall comes despite efforts by the Trump administration and the Republican-controlled Congress to reduce red ink since gaining full control of Washington in early 2025. They shrank the federal workforce, curtailed clean-energy tax breaks, allowed some healthcare subsidies to expire and lowered food-stamp enrollment, according to the Journal.

But President Trump’s hoped-for surge in tariff revenue did not materialize fully because the Supreme Court ruled that he overstepped his legal authority on tariffs, forcing the government to issue refunds. Republicans also expanded immigration-enforcement spending, extended expiring tax cuts and cut taxes further.

“They could have blown it up worse, and they wanted to, some of them,” said Douglas Holtz-Eakin, the former CBO director who now runs the conservative American Action Forum. “They didn’t make any real progress, so we just wandered along.”

The fiscal trajectory faces an additional headwind from rising bond yields. The benchmark 10-year Treasury yield stood at 5.27% on Thursday, according to Federal Reserve data, near 24-year highs. Higher yields drive up annual interest costs on the $32 trillion of publicly held debt, and the full effect of the recent yield run-up has not yet filtered into the budget because it only affects new debt issued as older debt comes due.

Headed into next month’s midterm elections, neither party has emphasized deficit reduction, and both have floated ideas that could increase deficits. President Trump has promised $5,000 checks for adult U.S. citizens — at a cost of more than $1 trillion — if voters keep Republicans in control of Congress, and he has called for a sharp increase in military spending. Democrats are running on restoring healthcare spending cuts made by Republicans.

Senate Budget Committee Chairman Ron Johnson (R., Wis.) said Congress pushed up spending during the pandemic and has not done enough to reduce it. “I harangued my colleagues, and obviously it was completely ignored,” he said in an interview. “It’s out-of-control spending, which we just refuse to rein back in to a reasonable level.”

In the post-election congressional session, Republicans may consider a one-party budget bill to implement the military spending increase sought by the Trump administration. Johnson said he is eyeing changes to reduce fraud in federal programs alongside that. “We can satisfy the defense hawks,” he said, “but we’re going to satisfy the debt hawks.”

“Running $2 trillion deficits in a growing economy with low unemployment and no major emergency situation going on is an unsustainable trend,” said Shai Akabas, vice president of economic policy at the Bipartisan Policy Center. It is “not what we should be doing when circumstances are relatively calm,” he said.

Democrats say the government should reverse declines in tax enforcement and raise taxes on corporations and high-income households. “There’s this sort of culture of impunity for primarily rich tax evaders that the government does not want to pursue,” said Corey Husak, director of tax policy at the Democratic-aligned Center for American Progress.

Rep. Brendan Boyle (D., Pa.), who is likely to lead the Budget Committee if Democrats take control of the House in next month’s election, said the deficit remains a problem regardless of which party holds power. “While Republicans have been completely hypocritical on the debt issue, that doesn’t make the problem of a massive deficit any less real,” he said. “Any serious plan must include finally making billionaires shoulder more of the burden.”

The annual deficits have accumulated into a publicly held debt that is surpassing 100% of GDP and heading toward the post-World War II record in a few years. The government’s largest programs, Social Security and Medicare, are both growing faster than the rest of the budget as the population ages, and both are popular with voters. After World War II, military spending declined and the U.S. sometimes ran annual budget surpluses, which drove the debt burden downward.

Trump administration officials have said they would release a “fiscal consolidation” plan to reduce deficits toward Treasury Secretary Scott Bessent’s target of 3% of GDP. Trump has also said he wants to issue the $5,000 checks, which would almost certainly be paid for with more borrowing, and he has pledged to block any attempts to reduce promised Social Security or Medicare benefits.